The book is organized around three main themes, Enterprise systems, E-business and Internal Controls and how these systems and the controls for these systems related to the study of accounting of information systems. Below are definitions and examples of these three themes: Enterprise Systems - integrate the business process functionality and information from all of an organization's functional areas, such as marketing and sales, cash receipts, purchasing, cash disbursements, human resources, production and logistics, and business reporting (including financial reporting). pg. 5. To install an enterprise system, the business processes of an organization must be understood and documented. Software packages called enterprise resource planning systems (ERP) can be used to support the enterprise system of an organization. ERP systems must be understood by accountants as they will be installing and operating these systems as part of a team in their organization. In fact, a major part of the installation project is the configuration of the enterprise system to tailor it to the business process. pg. 5
Enterprise Systems Capabilities and Limitations
Some enterprise information systems provide advanced support for transaction and security. For example, some systems support controlled access to their resources through transactions. These systems can participate in transactions with others by supporting two-phase commit protocol, managed by a transaction manager supported by a J2EE server. Other systems offer limited or almost no support for transactional access. For example, a system may only support transactions that are coordinated internally.
Legacy systems or applications that have been in existence for a long time may impose specific technology and administrative restrictions. For example, it may be difficult to create new user accounts in a legacy system or to extend this system to support development of new applications. In this case, an Application Component Provider has to live with what exists and enable access to such systems under restrictions. This may be a very typical situation.
When developing an application to integrate enterprise information systems, an Application Component Provider has to be aware of its functional and system capabilities, and design application components taking into account possibilities and limitations of the system. For example, application components should not be developed and deployed so that they require transactions spanning multiple resource managers if the J2EE server cannot really provide support for such transactions due to the fact that the participating enterprise information system resource managers do not support the two-phase commit protocol. In other cases, application components may need to limit their security requirements due to constraints of the underlying system. http://java.sun.com/blueprints/guidelines/designing_enterprise_applications/eis_tier/
E-Business - is the application of electronic networks (including the Internet) to undertake business processes between individuals and organizations. These processes include interaction between back-office (internal) processes, such as distribution, manufacturing, and accounting, and front-office (external) processes, such as those that connect an organization to its customers and suppliers. pg. 5
The e-business concept goes well beyond e-commerce as it also encompasses the integration of ICT into business processes of enterprises. In this context managerial innovation and entrepreneurial spirit are as important as technological breakthroughs. New developments indicate that the business use of ICT will increase in the next years. It is also essential to adapt the working environment through efficient use of ICT in the workplace and for a flexible organization of safe and high quality work.
Results of a representative survey conducted in January/February of 2005 by the e-Business W@tch and summarized in the third edition of the Pocketbook of e-Business Indicators, highlight the following trends:
· Electronic business is reaching technological maturity
· Increase in B2B online trading and dynamic development of electronic procurement
· B2C electronic commerce gains speed in specific markets, especially in e-tourism
· Business process integration is still the big question, with mainly large enterprises in the frontline with new system acquisitions.
Potential challenges pointed out by the e-Business W@tch are:
· E-procurement and e-sourcing. Saving procurement costs is an opportunity for buyers, but equally puts pressure on suppliers – thus efficiency gains compete with pressure on margins.
· Unequal gains from e-business due to high fixed costs. Larger firms are still in a better position to benefit and smaller companies are facing partly unfavorable scales of economies.
· Vanishing advantage. As ICT penetrates to enterprises, becoming a commonplace, the use of ICT to differentiate and gain strategic advantage needs more skills from management.
Some Definitions of E-Business:
Either (a) the transaction of business over an electronic medium such as the Internet or (b) any organization (for example, commercial, industrial, nonprofit, educational, or governmental) that transacts its business over an electronic medium such as the Internet.
Business conducted using electronic media such as the Internet, other computer networks, wireless transmissions, etc.
The processes and tools that allow an organization to use Internet-based technologies and infrastructure, both internally and externally, to conduct day to day business process operations.
business transactions and affairs conducted electronically, without having to be there in person, for example Internet banking, teleconferencing, working from home via Internet.
A new-tech jargon word used more for marketing than for technical description. Most commonly it broadly refers to conducting business over the Internet (email and web) by communicating and perhaps transacting (buying and selling) with customers, suppliers, and business partners.
Business that uses computer media and involves a minimum of two players.
electronic form of business, which also includes m-business, ie business that utilizes mobility; another often used expression is c-Business, where ‘c’ refers to convergence, collaborative, or connectivity and entails broadening the connections of electronic interaction.
An overarching term for service, sales, and collaborative business conducted over the Internet, either business-to-consumer or business-to business. Some define e-commerce as a monetary transaction segment of e-business, by in most cases, the terms are synonymous.
Electronic business, or "e-business", is any business process that is empowered by an information system. Today, this is mostly done with Web-based technologies.
> Internal Controls - Internal controls are the measures an organization adapts to: encourage adherence to agency policies and procedures as well as compliance with applicable laws and regulations; promote operational efficiency and effectiveness; safeguard assets; and ensure the reliability of accounting data. In other words, internal controls integrate people, structure, processes, and procedures to provide assurance that an organization achieves its business process goals. Internal controls encompass both internal administrative controls and internal accounting controls. //Click here for some examples//
Real-life example: As an internal auditor, about 90% of my job duties directly relate to the testing of internal controls and the reporting of the results of that testing. The Sarbanes-Oxley Act of 2002 greatly increased the amount and frequency of this testing hence the reason most of my day to day activities revolve around internal controls and their effectiveness. At my company, we follow the CAMP+ guidelines for testing which is guided by Sarbanes-Oxley requirements.
Challenges and Opportunities:
Being a CPA is much different today then it was 20 years, 10 years or even 5 years ago. Instead of the green eye-shaded bean counter, accountants today have much more dynamic roles. The Sarbanes-Oxley Act of 2002 (SOA) has changed the daily work of all accountants. It is an ongoing challenge to comply with SOA. According to Section 404 of this act, management must identify, document, and evaluate significant internal controls. As these responsibiities increase, so does the sophistication in technology, therefore adding to the complexity of internal control. Section 409 of the SOA requires disclosure to the public on a "rapid and current basis" of material changes in an organization's financial condition. This requires the application of legal, financial, and technical expertise to ensure that the organization's accounting information systems are able to produce financial data in a timely and accurate manner.
The AICPA has created a new credential, the certified information technology professional (CITP) to recognize CPAs who can provide skilled advice on using IT to implement business strategy. For instance, some of the skills necessary to receive this accreditation is to (1) Understanding of Project Management, (2) Familiarity with IT and business processes, and (3) Competence in Technology. If you would like more information on the requirements to become a CITP click here
Regarding the AIS, an accountant can assume one of three roles: designer, user, or auditor. Accountants can bring their knowledge of accounting principles, auditing principles, information system techniques, and systems develpoment methods to the design of an AIS as a designer. If an accountant designs the AIS, they should not be involved in auditing the system. Accountants can audit the system either as internal or external auditors. As auditors, their main concern is the reliability of the accounting data and reports produced by the system. The most likely role an accountant assumes is that of a user of the accounting information system. Different functions assumed by accountant make use of the AIS, such as controller, treasuer, tax specialist, financial analyst, cost accountant, general accountant, or budgeting specialist.
Not only has the role of the accountant changed but the environment in which accountants work has changed and continues to change rapidly. This rapid change in business environments, driven by Information Technology, does not appear to be slowing down. Thus presenting the CPA of today and tomorrow with new challenges and opportunities. Below these are described:
Broad View of AIS:
The AIS wheel consists of 10 elements, these can be defined as:
Technology - Our ability to plan and manage business operations depends partly on our knowledge of the technology available. Examples include enterprise systems, ERP systems, e-Business, databases, and intelligent systems. Technology provides the foundation on which AIS and business operations rest, and knowledge of technology is critically important to our complete understanding of the AIS discipline pg. 9. The top 10 AIS technologies include:
information security: Firewalls, Antivirus, password management, locked facilities, internet protocol strategy and perimeter
business information management: XML, PDF, "paperless office"
application integration: Ability of different systems to "talk"
web services: Web-enabled and Web-based applications such as Java
disaster recovery planning: Plan for continuity in the event of a loss of business information resources due to a disaster
customer relationship management: Managing all customer touch points
privacy: Protecting information from unauthorized use Notice that most of these technologies are aimed at providing security of information pg. 11
Databases - The full accounting cycle, however, includes data collection and storage, and these aspects must become part of your knowledge base. The variety of databases (both public and private), the quantity and type of data available, and the methods of retrieving those data are all important to a complete understanding of AIS pg. 10.
WEB OFFICE - Resources on the Web.
This company purports that it makes it easy to securely organize, access, and manage your companies data on the web via their database product. Your information is accessible online and is always-ready adding value to your business processes.
The WebOffice Database Manager makes it easy to securely organize, access, and manage your data on the web. You’ll have an online and always-ready information resource available for your entire business.
Generate formulas to automatically update your data
Use Calculated Fields to generate information that can change when other data elements change.
Keep everyone up-to-date with the latest information
The database application in 100% online, making it available to anyone at anytime.
Sort, group and filter your data
Create multiple views for easy reporting.
Import and export information
Save time by easily importing your current information to the Database Manager.
Reporting - To design reports generated by an information system, the accountant must know what outputs are required or are desirable. These reports often support management decisions as well as fulfill certain reporting obligations. Example: GAAP-based financial statements.
Control - The means by which we make sure the intended actually happens. The accountant must develop an understanding of control that is specific to the situation at hand, yet is adaptable for the future. As stated in the text, control is the means by which we make sure the intended actually happens pg. 11. Accountants spend a great deal of time providing expertise on controlling business processes.
Business Operations - Organizations engage in activities or operations, such as hiring employees, purchasing inventory, and collecting cash from customers. An AIS must operate in concert with these business operations. Many AIS inputs are prepared by the action or work centers of the organization, while many of the AIS outputs are used to manage these operations. Therefore, it is critical to analyze and manage an AIS in light of the work being performed by the organization pg. 12. Important: this element is a major component of a business process.
Events Processing - While organizations undertake their business operations, events, such as sales and purchases, occur. These events have operational and AIS aspects. Data about these events must be captured and recorded to mirror and monitor the business operations. Accounts should have knowledge on the events that are processed and how they are processed. pg. 12. Important: this element is a major component of a business process. The company I work for does governmnet contracting, and all events are tracked through invoices. Invoices are thuroughly checked for compliance with contracts guidelines throughout the life of the project at hand.
Management Decision Making - The information used for a decision must be tailored to the type of decision under consideration. Furthermore, the information is more useful if it recognizes the personal management styles and preferences of the decision maker. Beyond the information available to managers, many decision makers now use intelligent systems to help them make decisions. Important: this element is a major component of a business process.
Systems Development and Operation - The information systems that process business events and provide information for management decision making must be designed, implemented, and effectively operated. Choosing the data for a report and designing that report or configuring an enterprise system are examples of systems development tasks that can be accomplished by an accountant.
Communications - To present the results of their endeavors effectively, accountants must possess strong oral and written communication skills. Throughout my experience in the work force, management is always looking for new and innovative ideas. In order to be heard an employee and valued as more than justa bean counter, you must be able to not only convey information effectively but bring ideas to the table that can improve the current business processes within the coorporation.
Accounting and Auditing Principles - To design and operate the accounting system, an accountant must know the proper accounting procedures and must understand the audits to which the accounting information will be subjected.
Here we focus on the accounting information system itself (the database, the ERP System, the information system) Systems and Subsystems: System - is a set of interdependent elements that together accomplish specific objectives. To be a system it must have organization, interrelationships, integration, and central objectives. The basic objective of a system depends on its type -- natural, biological, or man-made. An example of the biological system is the human circulatory system (a subsystem of the human body) whose purpose is to carry blood containing oxygen and carbon dioxide to and from the organs and extremities of the body. pg. 13 You can consider a man-made system to be a coorporation. It is made up of different parts or departments that are all trying to work together to better the coorporation and raise its value.
Subsystem - is the interrelated parts that have come together, or integrated, as a single system. Within limits, any subsystem can be further divided into its component parts of subsystems. For example, at the University of Central Florida, the College of Business Administration is a subsystem of UCF. The Kenneth G. Dixon School of Accounting is a subsystem of the College of Business Administration. See Figure 1.2 (pg. 14) for further examples of a system and subsystem.
Bottom Line : The objectives of a business organization must be known in order for an accountant to understand a business as a system and the actions and interactions of a businesses components or subsystems
The Information System: Information Systems Model (IS) - also known as a management information system (MIS), see definition below. A simple information system is directed at the processing of business events. It serves two functions within an organization (1) to mirror and monitor actions in the operations system by processing, recording, and reporting business events and (2) to support managerial activities, including management decision making pg. 21. See Figure 1.3 (pg. 15) for an example of a Functional Model of an Information System. Management Information System (MIS) - is a man-made system that generally consists of an integrated set of computer-based and manual components established to collect, store, and manage data and to provide output information to users. pg.14.
The Accounting Information System: Accounting Information System (AIS) - is a specialized subsystem of the IS. The purpose of AIS is to collect, process, and report information related to financial aspects of business events. pg.15. However, given the integrated nature of information systems today, we seldom can distinguish an AIS that is separate from the IS. Just as an IS can be divided into its functional components, the AIS may be divided into components based on the operational functions supported. We call these AIS components the AIS processes or AIS subsystems.
Logical Model of a Business Process:
There are three logical components of a business process:
- Information Process as a portion of the Information system that is related to a particular business process. For example: the information process facilitates operations by maintaining inventory and customer data and by providing electronic signals and paper documents with which to execute business events, such as shipment to customers.
- Operations Process is a man-made system consisting of the people, equipment, organization, policies, and procedures whose objective is to accomplish the work of the organization. Examples of operation processes: production, marketing and sales, accounting, personnel, warehousing, distribution. pg. 18
- Management Process is a man-made system consisting of the people, authority, organization, policies, and procedures whose objective is to plan and control the operations of the organization. The three most prominent management activities are planning, controlling, and decision making. pg. 18
Management Uses of Information:
Data vs Information: (Pg. 21- 22) Information - Data presented in a form that is useful in a decision-making activity. It has value to the decision maker because it reduces uncertainty and increases knowledge about a particular area of concern. An example of information may be the same data below transformed into useful information whereby inventory levels are extrapolated and compared across the board to see the most efficient levels. Data - facts or figures in a raw form. Data represent the measurements or observations of objects and events. An example of data may be various inventory levels from warehouses all across the U.S.
To become useful to a decision maker, data must be transformed into information. Mirrors and Monitors - The system processes records business events (Monitoring), and then reports to users on those events (Mirroring). Support Management Activities - Managers use information from the system to:
1. Monitor current operations to keep their business on course
2. Help them achieve satisfactory results for all their stakeholders
3. Recognize and adapt to changes in the business environment
Effectiveness - Information should be relevent and pertain to the business process. It should also be delivered in a timely, correct, consistent, usable and complete manner.(See definitions below)
Efficiency - Providing information through the optimal usage of resources
Confidentiality - Information should be protected from unauthorized disclosure
Integrity - Accurate and complete (See below) information that is valid in accordance with a business's set of values and expectations.
Availability - Information available when required ( also concerns safeguarding of resources)
Compliance - Complying with laws, regulations, and contractual obligations externally imposed on a business
Reliability of information - Providing management with appropriate information both to use in operating the entity, in providing financial reporting to users of the financial information and in providing information to regulatory bodies with regard to compliance with laws and regulations.
These Qualities can be futher broken into the following:
Understandability - Information must be presented in such a way that it is easily understood by the decision-maker. This quality enables users to perceive the information's significance and is presents information in a way that permits its application by the user in the decision making situation at hand. For example: Information must be communicated via one's native language.
Timeliness - Information must be available to a decision-maker before it loses it's capacity to influence the decision (before the decision has been made). For example: Inventory levels must be updated in real-time in order to keep the production and supply chains running efficiently.
Predictive Value - Improves a decision-maker's capacity to predict expectations, such as using a sales forecast to establish inventory levels.
Feedback Value - Improves a decision-maker's capacity to correct earlier expectations, such as reviewing past inventory shortages and overages to refine decisions concerning inventory.
Verifiability - If many independent people come up with the same information using the same measurement methods, the information is considered verifiable. For example: Although not praised by all, recording assets at historical cost promotes verifiability because there is clear evidence of the asset's cost.
Neutrality (freedom from Bias) - Measures the reliability of the person doing the measuring. For example: If an accounts receivable balance is usually reported as higher than what can be collected, it's biased.
Comparability - The information quality that enables users to identify similarities and differences in two pieces of information.
Consistency - If you can compare information about the same object or event collected at two points of time, the information is consistent.
Accuracy - The agreement between the information and the actual objects or events the information represents.
Completeness - The degree to which information includes data about every relevant object or event necessary to make a decision.
There is a conflict among the information qualitites when these qualities are put into use. While an organization may have a strong internal control which requires accurate information, the timeliness of this information may be sacrificed. Thus, increasing the level of one quality sometimes decreases the level of another.
Knowledge Management (KM)
History of the definition of knowledge
Relevant to the definitions of data and information, is the definition of knowledge. While the definition of knowledge was developed in several stages throughout its history, its theoretical definition had been accredited to few whose contributions are so remarkable that their names are still mentioned even today when we refer to an important information age characteristic; the Knowledge Management (KM). By its very first definition: Knowledge is the perception of the agreement or disagreement of two ideas. --John Locke (1689) in his book of “Knowledge and Probability: An Essay Concerning Human Understanding”.While, Locke gave us the first hint of what knowledge is all about, others have tried to refine it since that time. Davenportand Prusak (1998) define knowledge as, "a fluid mix of framed experience, contextual information, values and expert insight that provides a framework for evaluating and incorporating new experiences and information." There are two parts to this definition.First, there is content: "a fluid mix of framed experience, contextual information, values and expert insight." This includes a number of things that we have within us, such as experiences, beliefs, values, how we feel, motivation, and information. Second, the function or purpose of knowledge, "that provides a framework for evaluating and incorporating new experiences and information." Notice how this relates back to Locke's definition -- we have within us a framework (one idea) that we use for evaluating new experiences (the second idea). Peter F. Drucker, in his book “The New Realities”, defines knowledge as information that changes something or somebody -- either by becoming grounds for actions, or by making an individual (or an institution) capable of different or more effective action.
The Concept of Knowledge Management (KM):
The traditional view of knowledge management has treated knowledge in terms of prepackaged or taken-for-granted interpretations of information. However, this static and contextual knowledge works against the generation of multiple and contradictory viewpoints that are necessary for meeting the challenge posed by wicked environments. - Dr. Yogesh Malhotra in Toward a Knowledge Ecology for Organizational White-Waters.
Data is organized into information by combining data with prior knowledge and the person's self-system to create a knowledge representation. This is normally done to solve a problem or make sense of a phenomenon. This knowledge representation is consistently changing as we receive new inputs, such as learnings, feelings, and experiences. This causes the knowledge representation to change due to our brains being branched or interconnected to other representations, rather than layered.
Since our brains are branched, knowledge is dynamic, that is, our various knowledge representations change and grow with each new experience and learning. Due to the complexity of knowledge representations, most are not captured by documents, rather they only reside within the creator of the representation. In many cases, the knowledge representation stays within the creator, in which case the "flow of knowledge" stops.
A Knowledge Management system, which may be as simple as a story or as complex as a million-dollar computer program, captures a snapshot of the person's knowledge representation. This is called knowledge harvesting. In the case of a story, the knowledge representation is passed onto others by means of a verbal snapshot. In the case of a computer program, it resides in a database that may be utilized by others. It is only a "snapshot" as further experiences and learnings within the creator may change the knowledge representation, while the snapshot remains the same.
Others may make use of the knowledge representation "snapshot" by using the story or tapping into the KM system and then combining it with their prior knowledge. This in turn forms a new or modified knowledge representation. This knowledge representation is then applied to solve a personal or business need, or explain a phenomenon. Depending upon the KM system and the novelty of the situation, a snapshot of this new knowledge representation may or may not be entered into the system.
Knowledge Management Framework
Knowledge Management and its impact on IS Auditing process:
Knowledge Management (KM) aids the IS auditors by providing them with a continuous process, and underlying IS infrastructure to the enterprise strategic business goal and objectives. The preemptive risk assessment requires an evaluation of the overall business organization, and to conduct this assessment, it is essential to evaluate not only the current business processes and its infrastructure, but also to understand the rationale behind business decisions, the existing dependencies, and how they support enterprise strategic goal. Auditors, like other knowledge workers, will have to learn how to incorporate net working technology into their daily work.
Along the same line of thought, Ageenko (1998), states that auditing of Information Systems (IS Audit), has become a profession of a great importance in all organizations’ IT capabilities management. He explains that, to claim itself competitive, and a value-added information service, IS audit must find new ways to satisfy business client’s emerging needs. Identifying new business needs in the area of IS integration and high level corporate conceptual knowledge modeling, are among the most important services managers require to make decisions and manage business as well as technology risks more effectively in large financial corporations.
Because decision making is a common activity for audit teams, one prospect is the use of net working technology to enhance collaboration and group decision making. In particular, according to Bamber et al. (1996), auditors can implement Group Support Systems (GSSs) which use networking to facilitate the sharing of information and expertise to improve the quality of group decision making. He also states that it is highly likely that Local Area Network (LAN) and Wide Area Network (WAN) will affect the infrastructure of the communication channels of auditing firms, with electronic stations substantially reducing face to face interaction.
Intelligence: Searching the environment for conditions calling for a decision.
Design: Inventing, developing, and analyzing possible courses of action.
Choice: Selecting a course of action
.
Operational Management Requirements - the flows are horizontal as the information moves through operational units such as sales, warehouse, and accounting. Information is narrow in scope, detailed, accurate, and comes largely from within the organization.
Tactical Management Requirements - information that focuses on relevant operational units and is more summarized, broader in scope, and need not be as accurate as the information used by operational management.
Strategic Management Requirements - information to assess the environment and to project future events and conditions. Information is even more summarized, broader in scope, and comes from outside the organization.
Horizontal Information Flows - Relates to an information flow regarding specific events (e.g. one shipment, or an individual piece of inventory).
Vertical Information Flows - Relates to an information flow that is useful at some higher level of management than it started. It is usually an aggregate or summary of horizontal information flows (e.g. a daily sales report, or stock price trend analysis).
Types of Decisions:
Structured - Refers to a decision in which all three of Simon's decision making phases are routine or repetitive. These are usually short term operational decisions (e.g. where the office get its office supplies).
Unstructured - Refers to a decision in which none of the decision phases are routine or repetitive. These are usually strategic decisions (e.g. whether or not to relocate manufacturing facilities for the firm to China).
Strategic Planning and Information Systems:
Strategic planning - the process of selecting the organization's long-term objectives and of setting the strategies for achieving those objectives. It is critical to the survival of that organization. The strategic planning process includes the following steps (refer to Figure 1.10, pg. 31 for picture):
Assess the environment for factors suggesting opportunities and threats (pg. 31)
Assess the organization's strengths and weaknesses and develop objectives that match those strenghts and weaknesses with the threats and opportunities in the environment. An objective is an intention; a desired state or condition being sought; a goal (pg. 32)
Derive the factors that are central to the accomplishment of the objectives and to the survival of the organization - the critical success factors. Critical Success Factors are events, circumstances, conditions, and activities that are essential to the survival of the organization (pg. 32)
Develop corporate strategy. A strategy is the organizational structure and processes by which an organization has chosen to achieve its objectives and critical success factors (pg. 32)
Identify the performance indicators that will demonstrate achievement of the organization's strategies and critical success factors (pg. 32)
To read more about , incorporating Porter's Five Forces, please click here
AICPA Core Competency Framework for Entry into the Accounting Profession (The Framework) - Broad Business Perspectives Compentency
What is the AICPA Core Competency Framework? The framework is used by educators to determine what competencies they should be teaching future accountants for preparation in their future careers. It can be found at this website www.aicpa.org/edu/corecomp.htm.
The following is a brief overview from the above website. Competency Definitions
A set of requisite competencies for all students preparing to enter the newly envisioned accounting profession that is positioned higher on the information value chain. Competencies are categorized as functional (technical competencies most closely aligned with the value contributed by accounting professionals), personal (individual attributes and values) and broad business perspective competencies (relating to understanding of internal and external business contexts).
Forthcoming Additions
Educational Practices
Sample strategies and classroom techniques that directly address the development of competencies. The Framework will provide information for academics in teaching roles. The Framework will link educators to general guidance on learning strategies (e.g., how to use the case method in class). It will also provide specific examples of recommended strategies and classroom techniques for each of the competencies. Evaluation Tools
Tools to evaluate how effectively individual courses or entire accounting programs address the competencies and plan curricular changes. The tools will improve the efficiency of administrative planning and review and the effectiveness of educational strategies. The evaluation tools will enable a mission-based comparison of courses and programs to the Framework, guide assessment of student outcomes, and facilitate curriculum planning and reform. The tools will also generate reports that can be made available to stakeholders such as employers, students, accreditation boards, and faculty, who want to know whether accounting courses and programs facilitate the development of desired student competencies.
Who Will be Interested in the Framework? As stated in my interpretation of its purpose, educaters will be the main benefactors with other groups also benefiting (such as local CPA organizations, students, employers, etc.)
What main category is AIS addressed in? A main subheading that deals with this is the competency to "Leverage Technology to Develop and Enhance a Broad Business Perspective." This discuesses how technology has changed how organizations operate. It is imperative that CPAs understand how technology affects the business invironment. The AICPA states that the elements include:
Recognizes commonly used information architectures
Recognizes business opportunities and risks associated with electronic commerce
Mines electronic data sources for business and industry information
Uses technology to develop and present strategic information
Main Themes:
The book is organized around three main themes, Enterprise systems, E-business and Internal Controls and how these systems and the controls for these systems related to the study of accounting of information systems. Below are definitions and examples of these three themes:Enterprise Systems - integrate the business process functionality and information from all of an organization's functional areas, such as marketing and sales, cash receipts, purchasing, cash disbursements, human resources, production and logistics, and business reporting (including financial reporting). pg. 5. To install an enterprise system, the business processes of an organization must be understood and documented. Software packages called enterprise resource planning systems (ERP) can be used to support the enterprise system of an organization. ERP systems must be understood by accountants as they will be installing and operating these systems as part of a team in their organization. In fact, a major part of the installation project is the configuration of the enterprise system to tailor it to the business process. pg. 5
Enterprise Systems Capabilities and Limitations
Some enterprise information systems provide advanced support for transaction and security. For example, some systems support controlled access to their resources through transactions. These systems can participate in transactions with others by supporting two-phase commit protocol, managed by a transaction manager supported by a J2EE server. Other systems offer limited or almost no support for transactional access. For example, a system may only support transactions that are coordinated internally.
Legacy systems or applications that have been in existence for a long time may impose specific technology and administrative restrictions. For example, it may be difficult to create new user accounts in a legacy system or to extend this system to support development of new applications. In this case, an Application Component Provider has to live with what exists and enable access to such systems under restrictions. This may be a very typical situation.
When developing an application to integrate enterprise information systems, an Application Component Provider has to be aware of its functional and system capabilities, and design application components taking into account possibilities and limitations of the system. For example, application components should not be developed and deployed so that they require transactions spanning multiple resource managers if the J2EE server cannot really provide support for such transactions due to the fact that the participating enterprise information system resource managers do not support the two-phase commit protocol. In other cases, application components may need to limit their security requirements due to constraints of the underlying system. http://java.sun.com/blueprints/guidelines/designing_enterprise_applications/eis_tier/
E-Business - is the application of electronic networks (including the Internet) to undertake business processes between individuals and organizations. These processes include interaction between back-office (internal) processes, such as distribution, manufacturing, and accounting, and front-office (external) processes, such as those that connect an organization to its customers and suppliers. pg. 5
The e-business concept goes well beyond e-commerce as it also encompasses the integration of ICT into business processes of enterprises. In this context managerial innovation and entrepreneurial spirit are as important as technological breakthroughs. New developments indicate that the business use of ICT will increase in the next years. It is also essential to adapt the working environment through efficient use of ICT in the workplace and for a flexible organization of safe and high quality work.
Results of a representative survey conducted in January/February of 2005 by the e-Business W@tch and summarized in the third edition of the Pocketbook of e-Business Indicators, highlight the following trends:
· Electronic business is reaching technological maturity
· Increase in B2B online trading and dynamic development of electronic procurement
· B2C electronic commerce gains speed in specific markets, especially in e-tourism
· Business process integration is still the big question, with mainly large enterprises in the frontline with new system acquisitions.
Potential challenges pointed out by the e-Business W@tch are:
· E-procurement and e-sourcing. Saving procurement costs is an opportunity for buyers, but equally puts pressure on suppliers – thus efficiency gains compete with pressure on margins.
· Unequal gains from e-business due to high fixed costs. Larger firms are still in a better position to benefit and smaller companies are facing partly unfavorable scales of economies.
· Vanishing advantage. As ICT penetrates to enterprises, becoming a commonplace, the use of ICT to differentiate and gain strategic advantage needs more skills from management.
Some Definitions of E-Business:
- Either (a) the transaction of business over an electronic medium such as the Internet or (b) any organization (for example, commercial, industrial, nonprofit, educational, or governmental) that transacts its business over an electronic medium such as the Internet.
- Business conducted using electronic media such as the Internet, other computer networks, wireless transmissions, etc.
- The processes and tools that allow an organization to use Internet-based technologies and infrastructure, both internally and externally, to conduct day to day business process operations.
- business transactions and affairs conducted electronically, without having to be there in person, for example Internet banking, teleconferencing, working from home via Internet.
- A new-tech jargon word used more for marketing than for technical description. Most commonly it broadly refers to conducting business over the Internet (email and web) by communicating and perhaps transacting (buying and selling) with customers, suppliers, and business partners.
- Business that uses computer media and involves a minimum of two players.
- electronic form of business, which also includes m-business, ie business that utilizes mobility; another often used expression is c-Business, where ‘c’ refers to convergence, collaborative, or connectivity and entails broadening the connections of electronic interaction.
- An overarching term for service, sales, and collaborative business conducted over the Internet, either business-to-consumer or business-to business. Some define e-commerce as a monetary transaction segment of e-business, by in most cases, the terms are synonymous.
- Electronic business, or "e-business", is any business process that is empowered by an information system. Today, this is mostly done with Web-based technologies.
>Internal Controls - Internal controls are the measures an organization adapts to: encourage adherence to agency policies and procedures as well as compliance with applicable laws and regulations; promote operational efficiency and effectiveness; safeguard assets; and ensure the reliability of accounting data. In other words, internal controls integrate people, structure, processes, and procedures to provide assurance that an organization achieves its business process goals. Internal controls encompass both internal administrative controls and internal accounting controls. //Click here for some examples//
Real-life example: As an internal auditor, about 90% of my job duties directly relate to the testing of internal controls and the reporting of the results of that testing. The Sarbanes-Oxley Act of 2002 greatly increased the amount and frequency of this testing hence the reason most of my day to day activities revolve around internal controls and their effectiveness. At my company, we follow the CAMP+ guidelines for testing which is guided by Sarbanes-Oxley requirements.
Challenges and Opportunities:
Being a CPA is much different today then it was 20 years, 10 years or even 5 years ago. Instead of the green eye-shaded bean counter, accountants today have much more dynamic roles. The Sarbanes-Oxley Act of 2002 (SOA) has changed the daily work of all accountants. It is an ongoing challenge to comply with SOA. According to Section 404 of this act, management must identify, document, and evaluate significant internal controls. As these responsibiities increase, so does the sophistication in technology, therefore adding to the complexity of internal control. Section 409 of the SOA requires disclosure to the public on a "rapid and current basis" of material changes in an organization's financial condition. This requires the application of legal, financial, and technical expertise to ensure that the organization's accounting information systems are able to produce financial data in a timely and accurate manner.The AICPA has created a new credential, the certified information technology professional (CITP) to recognize CPAs who can provide skilled advice on using IT to implement business strategy. For instance, some of the skills necessary to receive this accreditation is to (1) Understanding of Project Management, (2) Familiarity with IT and business processes, and (3) Competence in Technology. If you would like more information on the requirements to become a CITP click here
Regarding the AIS, an accountant can assume one of three roles: designer, user, or auditor. Accountants can bring their knowledge of accounting principles, auditing principles, information system techniques, and systems develpoment methods to the design of an AIS as a designer. If an accountant designs the AIS, they should not be involved in auditing the system. Accountants can audit the system either as internal or external auditors. As auditors, their main concern is the reliability of the accounting data and reports produced by the system. The most likely role an accountant assumes is that of a user of the accounting information system. Different functions assumed by accountant make use of the AIS, such as controller, treasuer, tax specialist, financial analyst, cost accountant, general accountant, or budgeting specialist.
Not only has the role of the accountant changed but the environment in which accountants work has changed and continues to change rapidly. This rapid change in business environments, driven by Information Technology, does not appear to be slowing down. Thus presenting the CPA of today and tomorrow with new challenges and opportunities. Below these are described:
Broad View of AIS:
The AIS wheel consists of 10 elements, these can be defined as:WEB OFFICE - Resources on the Web.
This company purports that it makes it easy to securely organize, access, and manage your companies data on the web via their database product. Your information is accessible online and is always-ready adding value to your business processes.
The WebOffice Database Manager makes it easy to securely organize, access, and manage your data on the web. You’ll have an online and always-ready information resource available for your entire business.
- Create powerful, customized databases
Use our pre-made database templates or build your own databases from scratch.- Generate formulas to automatically update your data
Use Calculated Fields to generate information that can change when other data elements change.- Keep everyone up-to-date with the latest information
The database application in 100% online, making it available to anyone at anytime.- Sort, group and filter your data
Create multiple views for easy reporting.- Import and export information
Save time by easily importing your current information to the Database Manager.- Reporting - To design reports generated by an information system, the accountant must know what outputs are required or are desirable. These reports often support management decisions as well as fulfill certain reporting obligations. Example: GAAP-based financial statements.
- Control - The means by which we make sure the intended actually happens. The accountant must develop an understanding of control that is specific to the situation at hand, yet is adaptable for the future. As stated in the text, control is the means by which we make sure the intended actually happens pg. 11. Accountants spend a great deal of time providing expertise on controlling business processes.
- Business Operations - Organizations engage in activities or operations, such as hiring employees, purchasing inventory, and collecting cash from customers. An AIS must operate in concert with these business operations. Many AIS inputs are prepared by the action or work centers of the organization, while many of the AIS outputs are used to manage these operations. Therefore, it is critical to analyze and manage an AIS in light of the work being performed by the organization pg. 12. Important: this element is a major component of a business process.
- Events Processing - While organizations undertake their business operations, events, such as sales and purchases, occur. These events have operational and AIS aspects. Data about these events must be captured and recorded to mirror and monitor the business operations. Accounts should have knowledge on the events that are processed and how they are processed. pg. 12. Important: this element is a major component of a business process. The company I work for does governmnet contracting, and all events are tracked through invoices. Invoices are thuroughly checked for compliance with contracts guidelines throughout the life of the project at hand.
- Management Decision Making - The information used for a decision must be tailored to the type of decision under consideration. Furthermore, the information is more useful if it recognizes the personal management styles and preferences of the decision maker. Beyond the information available to managers, many decision makers now use intelligent systems to help them make decisions. Important: this element is a major component of a business process.
- Systems Development and Operation - The information systems that process business events and provide information for management decision making must be designed, implemented, and effectively operated. Choosing the data for a report and designing that report or configuring an enterprise system are examples of systems development tasks that can be accomplished by an accountant.
- Communications - To present the results of their endeavors effectively, accountants must possess strong oral and written communication skills. Throughout my experience in the work force, management is always looking for new and innovative ideas. In order to be heard an employee and valued as more than justa bean counter, you must be able to not only convey information effectively but bring ideas to the table that can improve the current business processes within the coorporation.
- Accounting and Auditing Principles - To design and operate the accounting system, an accountant must know the proper accounting procedures and must understand the audits to which the accounting information will be subjected.
http://www.bus.ucf.edu/shornik/acg5405/ppt/Revised01final.ppt#7Narrow View of AIS:
Here we focus on the accounting information system itself (the database, the ERP System, the information system)Systems and Subsystems:
System - is a set of interdependent elements that together accomplish specific objectives. To be a system it must have organization, interrelationships, integration, and central objectives. The basic objective of a system depends on its type -- natural, biological, or man-made. An example of the biological system is the human circulatory system (a subsystem of the human body) whose purpose is to carry blood containing oxygen and carbon dioxide to and from the organs and extremities of the body. pg. 13 You can consider a man-made system to be a coorporation. It is made up of different parts or departments that are all trying to work together to better the coorporation and raise its value.
Subsystem - is the interrelated parts that have come together, or integrated, as a single system. Within limits, any subsystem can be further divided into its component parts of subsystems. For example, at the University of Central Florida, the College of Business Administration is a subsystem of UCF. The Kenneth G. Dixon School of Accounting is a subsystem of the College of Business Administration. See Figure 1.2 (pg. 14) for further examples of a system and subsystem.
Bottom Line : The objectives of a business organization must be known in order for an accountant to understand a business as a system and the actions and interactions of a businesses components or subsystems
The Information System:
Information Systems Model (IS) - also known as a management information system (MIS), see definition below. A simple information system is directed at the processing of business events. It serves two functions within an organization (1) to mirror and monitor actions in the operations system by processing, recording, and reporting business events and (2) to support managerial activities, including management decision making pg. 21. See Figure 1.3 (pg. 15) for an example of a Functional Model of an Information System.
Management Information System (MIS) - is a man-made system that generally consists of an integrated set of computer-based and manual components established to collect, store, and manage data and to provide output information to users. pg.14.
The Accounting Information System:
Accounting Information System (AIS) - is a specialized subsystem of the IS. The purpose of AIS is to collect, process, and report information related to financial aspects of business events. pg.15. However, given the integrated nature of information systems today, we seldom can distinguish an AIS that is separate from the IS. Just as an IS can be divided into its functional components, the AIS may be divided into components based on the operational functions supported. We call these AIS components the AIS processes or AIS subsystems.
Logical Model of a Business Process:
There are three logical components of a business process:- Information Process as a portion of the Information system that is related to a particular business process. For example: the information process facilitates operations by maintaining inventory and customer data and by providing electronic signals and paper documents with which to execute business events, such as shipment to customers.
- Operations Process is a man-made system consisting of the people, equipment, organization, policies, and procedures whose objective is to accomplish the work of the organization. Examples of operation processes: production, marketing and sales, accounting, personnel, warehousing, distribution. pg. 18
- Management Process is a man-made system consisting of the people, authority, organization, policies, and procedures whose objective is to plan and control the operations of the organization. The three most prominent management activities are planning, controlling, and decision making. pg. 18
Management Uses of Information:
Data vs Information: (Pg. 21- 22)
Information - Data presented in a form that is useful in a decision-making activity. It has value to the decision maker because it reduces uncertainty and increases knowledge about a particular area of concern. An example of information may be the same data below transformed into useful information whereby inventory levels are extrapolated and compared across the board to see the most efficient levels.
Data - facts or figures in a raw form. Data represent the measurements or observations of objects and events. An example of data may be various inventory levels from warehouses all across the U.S.
To become useful to a decision maker, data must be transformed into information.
Mirrors and Monitors - The system processes records business events (Monitoring), and then reports to users on those events (Mirroring).
Support Management Activities - Managers use information from the system to:
1. Monitor current operations to keep their business on course
2. Help them achieve satisfactory results for all their stakeholders
3. Recognize and adapt to changes in the business environment
Qualities of Information:
Statement of Financial Accounting Concepts No 2: Qualitative Characteristics of Accounting Information (Pgs 22-26)
http://www.fasb.org/pdf/con2.pdf FASB webpage
There is a conflict among the information qualitites when these qualities are put into use. While an organization may have a strong internal control which requires accurate information, the timeliness of this information may be sacrificed. Thus, increasing the level of one quality sometimes decreases the level of another.
Knowledge Management (KM)
History of the definition of knowledge
Relevant to the definitions of data and information, is the definition of knowledge. While the definition of knowledge was developed in several stages throughout its history, its theoretical definition had been accredited to few whose contributions are so remarkable that their names are still mentioned even today when we refer to an important information age characteristic; the Knowledge Management (KM).By its very first definition: Knowledge is the perception of the agreement or disagreement of two ideas. --John Locke (1689) in his book of “Knowledge and Probability: An Essay Concerning Human Understanding”.While, Locke gave us the first hint of what knowledge is all about, others have tried to refine it since that time.
Davenport and Prusak (1998) define knowledge as, "a fluid mix of framed experience, contextual information, values and expert insight that provides a framework for evaluating and incorporating new experiences and information." There are two parts to this definition.First, there is content: "a fluid mix of framed experience, contextual information, values and expert insight." This includes a number of things that we have within us, such as experiences, beliefs, values, how we feel, motivation, and information. Second, the function or purpose of knowledge, "that provides a framework for evaluating and incorporating new experiences and information." Notice how this relates back to Locke's definition -- we have within us a framework (one idea) that we use for evaluating new experiences (the second idea).
Peter F. Drucker, in his book “The New Realities”, defines knowledge as information that changes something or somebody -- either by becoming grounds for actions, or by making an individual (or an institution) capable of different or more effective action.
The Concept of Knowledge Management (KM):
The traditional view of knowledge management has treated knowledge in terms of prepackaged or taken-for-granted interpretations of information. However, this static and contextual knowledge works against the generation of multiple and contradictory viewpoints that are necessary for meeting the challenge posed by wicked environments. - Dr. Yogesh Malhotra in Toward a Knowledge Ecology for Organizational White-Waters.Data is organized into information by combining data with prior knowledge and the person's self-system to create a knowledge representation. This is normally done to solve a problem or make sense of a phenomenon. This knowledge representation is consistently changing as we receive new inputs, such as learnings, feelings, and experiences. This causes the knowledge representation to change due to our brains being branched or interconnected to other representations, rather than layered.
Since our brains are branched, knowledge is dynamic, that is, our various knowledge representations change and grow with each new experience and learning. Due to the complexity of knowledge representations, most are not captured by documents, rather they only reside within the creator of the representation. In many cases, the knowledge representation stays within the creator, in which case the "flow of knowledge" stops.
A Knowledge Management system, which may be as simple as a story or as complex as a million-dollar computer program, captures a snapshot of the person's knowledge representation. This is called knowledge harvesting. In the case of a story, the knowledge representation is passed onto others by means of a verbal snapshot. In the case of a computer program, it resides in a database that may be utilized by others. It is only a "snapshot" as further experiences and learnings within the creator may change the knowledge representation, while the snapshot remains the same.
Others may make use of the knowledge representation "snapshot" by using the story or tapping into the KM system and then combining it with their prior knowledge. This in turn forms a new or modified knowledge representation. This knowledge representation is then applied to solve a personal or business need, or explain a phenomenon. Depending upon the KM system and the novelty of the situation, a snapshot of this new knowledge representation may or may not be entered into the system.
Knowledge Management Framework
Knowledge Management and its impact on IS Auditing process:
Knowledge Management (KM) aids the IS auditors by providing them with a continuous process, and underlying IS infrastructure to the enterprise strategic business goal and objectives. The preemptive risk assessment requires an evaluation of the overall business organization, and to conduct this assessment, it is essential to evaluate not only the current business processes and its infrastructure, but also to understand the rationale behind business decisions, the existing dependencies, and how they support enterprise strategic goal. Auditors, like other knowledge workers, will have to learn how to incorporate net working technology into their daily work.Along the same line of thought, Ageenko (1998), states that auditing of Information Systems (IS Audit), has become a profession of a great importance in all organizations’ IT capabilities management. He explains that, to claim itself competitive, and a value-added information service, IS audit must find new ways to satisfy business client’s emerging needs. Identifying new business needs in the area of IS integration and high level corporate conceptual knowledge modeling, are among the most important services managers require to make decisions and manage business as well as technology risks more effectively in large financial corporations.
Because decision making is a common activity for audit teams, one prospect is the use of net working technology to enhance collaboration and group decision making. In particular, according to Bamber et al. (1996), auditors can implement Group Support Systems (GSSs) which use networking to facilitate the sharing of information and expertise to improve the quality of group decision making. He also states that it is highly likely that Local Area Network (LAN) and Wide Area Network (WAN) will affect the infrastructure of the communication channels of auditing firms, with electronic stations substantially reducing face to face interaction.
Management Decision Making:
Herbert Simon- 3 step Process- Intelligence: Searching the environment for conditions calling for a decision.
- Design: Inventing, developing, and analyzing possible courses of action.
- Choice: Selecting a course of action
.Types of Decisions:
Structured - Refers to a decision in which all three of Simon's decision making phases are routine or repetitive. These are usually short term operational decisions (e.g. where the office get its office supplies).
Unstructured - Refers to a decision in which none of the decision phases are routine or repetitive. These are usually strategic decisions (e.g. whether or not to relocate manufacturing facilities for the firm to China).
Strategic Planning and Information Systems:
Strategic planning - the process of selecting the organization's long-term objectives and of setting the strategies for achieving those objectives. It is critical to the survival of that organization. The strategic planning process includes the following steps (refer to Figure 1.10, pg. 31 for picture):
- Assess the environment for factors suggesting opportunities and threats (pg. 31)
- Assess the organization's strengths and weaknesses and develop objectives that match those strenghts and weaknesses with the threats and opportunities in the environment. An objective is an intention; a desired state or condition being sought; a goal (pg. 32)
- Derive the factors that are central to the accomplishment of the objectives and to the survival of the organization - the critical success factors. Critical Success Factors are events, circumstances, conditions, and activities that are essential to the survival of the organization (pg. 32)
- Develop corporate strategy. A strategy is the organizational structure and processes by which an organization has chosen to achieve its objectives and critical success factors (pg. 32)
- Identify the performance indicators that will demonstrate achievement of the organization's strategies and critical success factors (pg. 32)
To read more about , incorporating Porter's Five Forces, please click hereAICPA Core Competency Framework for Entry into the Accounting Profession (The Framework) - Broad Business Perspectives Compentency
What is the AICPA Core Competency Framework?
The framework is used by educators to determine what competencies they should be teaching future accountants for preparation in their future careers. It can be found at this website www.aicpa.org/edu/corecomp.htm.
The following is a brief overview from the above website.
Competency Definitions
A set of requisite competencies for all students preparing to enter the newly envisioned accounting profession that is positioned higher on the information value chain. Competencies are categorized as functional (technical competencies most closely aligned with the value contributed by accounting professionals), personal (individual attributes and values) and broad business perspective competencies (relating to understanding of internal and external business contexts).
Forthcoming Additions
Educational Practices
Sample strategies and classroom techniques that directly address the development of competencies. The Framework will provide information for academics in teaching roles. The Framework will link educators to general guidance on learning strategies (e.g., how to use the case method in class). It will also provide specific examples of recommended strategies and classroom techniques for each of the competencies.
Evaluation Tools
Tools to evaluate how effectively individual courses or entire accounting programs address the competencies and plan curricular changes. The tools will improve the efficiency of administrative planning and review and the effectiveness of educational strategies. The evaluation tools will enable a mission-based comparison of courses and programs to the Framework, guide assessment of student outcomes, and facilitate curriculum planning and reform. The tools will also generate reports that can be made available to stakeholders such as employers, students, accreditation boards, and faculty, who want to know whether accounting courses and programs facilitate the development of desired student competencies.
Who Will be Interested in the Framework?
As stated in my interpretation of its purpose, educaters will be the main benefactors with other groups also benefiting (such as local CPA organizations, students, employers, etc.)
What main category is AIS addressed in?
A main subheading that deals with this is the competency to "Leverage Technology to Develop and Enhance a Broad Business Perspective." This discuesses how technology has changed how organizations operate. It is imperative that CPAs understand how technology affects the business invironment. The AICPA states that the elements include:
Information gathered from**: http://www.aicpa.org/edu/corecomp.htm